Chinese demand for iron ore will likely be restrained this month if domestic finished steel demand continues to be subdued, Mysteel’s latest monthly report noted, while iron ore supply could loosen further during the period, it warns.
During June, though pandemic-related containment measures had eased and the central government had introduced stimulus measures to boost economic growth, the recovery in domestic steel demand was rather limited as the summer season of heavy rains and heat loomed.
Consequently, when steel production was relatively high, especially in the first half of the month, the sluggish demand caused finished steel prices to tumble, inevitably biting further into many steelmakers’ margins. Later when some mills began to lose money, they started to schedule additional maintenance stoppages on their facilities, including blast furnaces, to trim their production.
Mysteel’s survey showed that as of June 29, integrated steel mills in Tangshan, China’s top steel production city and billet supply base, were still losing some Yuan 307 ($45.7) on average for every tonne of semis they sold, even though the average loss had narrowed by Yuan 107/tonne on week.
Correspondingly, real iron ore demand among Chinese steelmakers had gradually weakened since the second half of June.
According to Mysteel’s data, over June 24-June 30, daily hot metal output among the 247 steelmakers regularly monitored had dipped for the second week to an average of 2.36 million tonnes/day, a new low since late April.
For this month then, iron ore demand trends will depend on whether steelmakers further control their production or lift it, the report notes, and this will be determined by the strength of any recovery of steel demand, rather than by margins.
If steel demand remains at a low level, then daily hot metal output would still have room to decline further from current levels, according to Mysteel’s report.
Regarding iron ore supply, Mysteel expects that imported iron ore availability at Chinese ports will edge up further this month, due to the previous uptick in shipments in June, especially from miners in Australia and Brazil.
Last month, Mysteel’s data had indicated that iron ore shipments from Australia reached 81.39 million tonnes, up 1.91 million tonnes on month, and the volume from Brazil also rose by 320,000 tonnes on month to 29.66 million tonnes.
However, for this month, domestic iron ore production is expected to remain stable or see some fluctuation from June, as the softening demand among steelmakers and lower prices for ore might continue to dent the enthusiasm of some miners to keep their production up.
Under this scenario, Mysteel forecasts that the supply-demand gap in iron ore will narrow this month, and total inventories at China’s ports might see a further but slower decrease.
Moreover, if iron ore demand shrinks more substantially and ore supplies at ports grow sharply too, July might see port inventories begin to accumulate earlier than August, as some in the market had previously expected.
Mysteel’s latest data showed that the continuous drop in imported iron ore inventories at China’s 45 major ports since late March finally ended over June 24-30, with the volume climbing to 126.3 million tonnes, up by a modest 539,300 tonnes on week. However, the volume was still 8.28 million tonnes lower than that on May 26.
Source: Mysteel
Moreover, Mysteel’s report suggests that iron ore prices might be still under great pressure this month, as the likelihood of a recovery in steel demand is quite unclear and steelmakers may continue to control their production. And for the longer term, the litany of woes facing China’s real estate market will likely continue to weigh on steel demand.
Iron ore prices have headed south further throughout June, with Mysteel SEADEX 62% Australian Fines plunging to as low as $109.35/dmt CFR Qingdao on June 22 – the lowest since December 15, 2021. The index then recovered to $119.1/dmt as of June 30 but was still $17.3/dmt lower than the price on May 31.
Written by Victoria Zou, zyongjia@mysteel.com
This article has been published under an article exchange agreement between Mysteel Global and SteelMint.
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